Construction Spending and Growth Trend Continues

The commercial construction industry continues to grow, and this means a demand for a skilled labor in the construction workforce.

The NAIOP research foundation has released its annual report, Economic Impacts of Commercial Real Estate; a study filled with statistical analysis on pre-construction, site development, on-site construction, tenant improvement and operations expenditures across office, industrial, warehouse and retail real estate in the US.

Overall, the study found that construction expenditures will continue the recent pattern of year-over-year growth that has been on the rise since 2011, particularly in residential and commercial building construction. Additionally, the report predicts that the strength of the construction industry will help to buoy the national economy for several years to come.

The 6 percent construction increase for 2016 ($172 billion) is going to be closer to 10 percent – if you eliminate a projected 43 percent downturn in electric power and gas, a nonbuilding sector. Gains of 9 percent are expected for nonresidential building. Residential will be even stronger at 16 percent.

Predictions for 2016 and beyond

Despite uncertain global economic conditions, forecasts for the U.S. economy beyond 2016 remain positive, with the broad base of the economy projected to grow through 2021 according to IHS Economics (April 2016). This positive economic outlook reflects continued strong performance of both residential and nonresidential construction with combined annual growth rates exceeding the projected GDP growth rate for each of the next five years.

IHS Economics (April 2016) projects that fixed investment in both residential and nonresidential (retail, office, health care and warehouse) construction will increase between 8 and 10 percent in 2016.

Nonresidential building construction spending presents an uneven growth trend. It will be negatively impacted by weakness in manufacturing and energy-related construction in 2017 and 2018. Yet construction spending for retail, office and health care buildings is projected to remain strong in 2016, peak in 2017 and continue to grow through at least 2021.

Construction spending for retail and office buildings was up in 2015 and is projected to continue growing in 2016 before peaking in 2017. Beyond 2017, it is expected to experience continuing but slower growth. Construction spending for warehouse and flex space has increased steadily since 2011, but is projected to register slower growth in 2016. These slower growth trends are expected to continue over the remainder of the decade. The growth projections for nonresidential construction reflect the expected moderate performance of the U.S. economy over the next five years, with growth rates peaking in 2017 and 2018 at about 2.7 percent and returning to around 2.4 percent in 2019.

For complete statistical analysis on the US construction industry and its impact on GDP, personal earnings and job creation, please download the full report from www.naiop.org.

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